# Follow-through Day Also known as: FTD, follow-through, IBD follow-through day. A Breadth, Sentiment & External Data concept (Breadth) in the LuxAlgo Library, with 1 indicator implementation. ## What is a follow-through day? A follow-through day is William O'Neil's confirmation that a market correction may have ended: on the fourth day or later of a rally attempt, a major index closes up strongly on higher volume than the session before. It is the bullish half of the market-direction rules in O'Neil's How to Make Money in Stocks, applied daily by Investor's Business Daily, and the counterpart to the [distribution day](https://www.luxalgo.com/library/concept/distribution-days/) count. The counting is precise. Day 1 of a rally attempt is the first session after a new correction low in which the index closes higher; IBD also accepts a day that undercuts the low and then closes in the upper half of its range. The attempt stays alive while the index holds above Day 1's low; an undercut restarts the count. From Day 4 onward, a gain of at least a set percentage in the Nasdaq Composite or the S&P 500, on volume above the prior session, is the follow-through; one index is enough. O'Neil found the strongest follow-throughs on days 4 to 7. The minimum gain has moved over the decades. O'Neil's original rule used 1%, and his 2002 edition says he had since raised it; IBD was applying 1.7% by the mid-2000s, arguing markets had grown more volatile, and recent descriptions of IBD's rule commonly give about 1.25%. The volume test has not changed: higher than the day before, not necessarily above average. IBD's position is that not every follow-through leads to a new uptrend, but no major rally has begun without one. Independent tests are mixed: Rob Hanna's 2008 Quantifiable Edges studies of S&P 500 follow-throughs since 1971 found success rates near a coin flip under his definitions, short of the 70 to 80 percent IBD had cited, and found the 1.7% bar missed or came late to several rallies the 1% version caught. Treat it as permission to start buying leaders, not as a buy signal for the index. ## How it's calculated Rally-attempt counting and the follow-through test on one index's daily data. ``` r_t = 100 × (C_t - C_t-1) / C_t-1 Day 1 = first session d after the correction low with C_d > C_d-1 n_t = t - d + 1 Alive_t = 1 if min(L_d+1 ... L_t) >= L_d, else 0 FTD_t = 1 if Alive_t = 1, n_t >= 4, r_t >= θ, and V_t > V_t-1, else 0 C_t: index close on day t L_t: index low on day t V_t: index volume on day t r_t: daily percentage change of the close d: the session that starts the rally attempt (Day 1) n_t: rally-attempt day number on day t Alive_t: 1 while the attempt has not undercut Day 1's low θ: minimum gain in percent (1 in the original rule, 1.7 in IBD's 2000s rule, about 1.25 in recent descriptions) FTD_t: 1 when day t is a follow-through day t: trading-day index ``` Run the test on the Nasdaq Composite and the S&P 500 separately; when Alive_t drops to 0, a new Day 1 is sought. ## How traders use it - Re-entry permission: O'Neil-style traders wait for a follow-through before buying, then add exposure only as [leading stocks break out](https://www.luxalgo.com/library/concept/oneil-base-analysis/) of sound bases and hold. - Gradual exposure: positions are built in steps after the signal, so a failed follow-through costs a small test position, not a full book. - Failure monitoring: an undercut of the rally attempt's low, or distribution days stacking up soon after the signal, puts the market back in correction. ## Follow-through day vs related signals - **Distribution Day Count** (https://www.luxalgo.com/library/concept/distribution-days/): The bearish counterpart: high-volume down days counted over 25 sessions. A follow-through is a single event confirming a new uptrend; distribution days accumulate to question an existing one. - **Breadth Thrusts** (https://www.luxalgo.com/library/concept/breadth-thrusts/): A thrust measures how fast participation swings from washed out to near-unanimous across many stocks. A follow-through uses only the index's change and volume, so it can fire on a narrow rally. - **O'Neil Base Analysis** (https://www.luxalgo.com/library/concept/oneil-base-analysis/): Base analysis times entries in individual stocks. The follow-through day decides whether the market environment permits those entries at all; O'Neil's method uses the two together. ## FAQ ### On which day can a follow-through day occur? Day 4 of the rally attempt or later, counting the first up day after the low as Day 1, so a big gain on Day 2 or 3 does not qualify. O'Neil found the strongest follow-throughs on days 4 to 7. ### How big must the gain be on a follow-through day? It depends on the era: O'Neil's original rule used 1%, IBD was using 1.7% by the mid-2000s, and recent descriptions of IBD's rule commonly give about 1.25%. Every version requires volume above the previous session's. ### What makes a follow-through day fail? The index undercutting the rally attempt's low, or a quick run of distribution days after the signal. Many follow-throughs fail, which is why exposure is added gradually. ### Is a follow-through day a buy signal? Not for the index in O'Neil's method. It changes market status to permit buying individual leaders breaking out of proper bases; without such breakouts there is little to act on. ## Implementations in the Library - Follow-through Day (LuxAlgo): https://www.luxalgo.com/library/indicator/follow-through-day/ ## Related concepts - Advance/decline Internals: https://www.luxalgo.com/library/concept/advance-decline-internals/ - Up/down Volume: https://www.luxalgo.com/library/concept/up-down-volume/ - TICK Index: https://www.luxalgo.com/library/concept/tick-index/ - % Stocks Above 20/50/200-day MA: https://www.luxalgo.com/library/concept/percent-stocks-above-20-50-200-day-ma/ - New Highs − New Lows: https://www.luxalgo.com/library/concept/new-highs-new-lows/ - Participation Divergence at Index Highs: https://www.luxalgo.com/library/concept/participation-divergence-at-index-highs/ - TRIN: https://www.luxalgo.com/library/concept/trin/ - McClellan Oscillator: https://www.luxalgo.com/library/concept/mcclellan-oscillator/ - Breadth Thrusts: https://www.luxalgo.com/library/concept/breadth-thrusts/ - Equal-weight vs Cap-weight Ratio: https://www.luxalgo.com/library/concept/equal-weight-vs-cap-weight-ratio/ --- Source: https://www.luxalgo.com/library/concept/follow-through-day/ (LuxAlgo Library, the encyclopedia of trading & technical analysis). Free to use with attribution: https://www.luxalgo.com/library/license/